In the wake of the Standard & Poor’s deal to pay a fine but avoid admission of wrong-doing, some questions arise.
- The fine is more than the amount of profits made from the bad ratings, but is it actually going to change corporate behavior?
- The really big stick is enjoining the firm from rating certain kinds of bonds, their core business, for a certain period of time. Why not? Is the ratings business really so concentrated in a few firms that S&P is ‘too big to fail’ not in a monetary sense, but in a process sense?
- Another remedy is increased disclosure. The SEC already expects the ratings agencies to disclose some information on their sites, for public scrutiny. This could have been ratcheted up for a time. Why not?
Money isn’t everything. Changing behavior is much more difficult, but much more important, than a fine.
And finally, who does audit ratings quality? Nobody? We audit food quality, drug quality. If you sell a product that can hurt the public, shouldn’t it be inspected at some point?